NOTE DE CURS

I. Exchange rates Every business person involved in overseas trade, whether importing or exporting, will have to make or to receive payment in foreign currency. The currency of the invoice can represent a significant part in the sales negotiation and make a important difference to the final costs or proceeds. The exchange rate is simply the price of one currency in relation to another. The foreign currency must be freely convertible, in which case any one can sell it, swap it or exchange it for another currency. Exchange rates are quoted in the financial press at middle rates i.e. the difference between the buying rate and selling rate. Banks have their own foreign exchange departments and provide daily sheets or screens of up-to-date rates. The market place for trading foreign currencies is the telephone and computer links worldwide now days. All currency holdings reside in their country of origin: sterling in UK, US dollars in United States; only notes and coins, insignificant in global terms, actually move from one country to another. Central banks, commercial banks and other financial institutions, large commercial companies and few wealthy individuals are parties in the foreign exchange market, that undertakes trade in 2 areas:

a) wholesale market: interbank trading or very large commercial companies b) retail market: or commercial customers

The most available world quotation is the American dollar. Each bank or broker must be authorized and controlled to deal in foreign exchange by the central bank. The exchange currency market carries out three kinds of business: 1. spot: for settlement after two working days 2. outright: forward deals for settlement at some future date 3. swap: the purchase/sale of a currency in the spot market combined with a

simultaneous sale/purchase in the forward market Central Banks Intervention Some countries have regulations where exchange control measures may be introduced to regulate or restrict the flow of money to ensure that the country has sufficient reserves of foreign exchange to pay its international debts. But there are also countries which are free of control restrictions, as the highly developed ones. According to the type of underlying transactions, banks offer different rates of exchange: commercial rates: that vary according to the size of the transaction; some rates

incorporate interest costs during the period that the bank is out of funds. The rates are paper based commercial transactions and do not evolve the movement of notes or coins.

note rates for the purchase and sale of foreign currency and coins when a bank gives a quotation it will give two rates

a selling rate a buying rate

The difference between these rates are called the "spread" will be adjusted to attract business and represents the banks profit. Exchange risks can be virtually fully removed by :

1. forward contracts 2. currency accounts 3. currency options 4. financial futures contracts

1. Customers wanting to establish the amount they will receive or must pay at the trade payment date in order to calculate their profit margins, will fix the price of the cost of the currency by concluding a forward exchange contract.

2. Currency accounts are any currency owned and traded outside its territorial borders. They are mostly called Eurocurrency transactions because Europe was the centre where trading of these currencies originated.

3. Currency options represents a service that provides an alternative means of covering against exchange risks, as the contract is a commitment from the bank, but it is not binding on the customer; it gives the customer the option whether or not they utilize the contract. The "option" protects against the rates movement adversely. The right to buy or sell a given amount of a foreign currency at a future date can be exercised or lapsed or resold with cash settlement.

4. Financial Future Contracts For a fee, an exporter can fix forward exchange rates to calculate their price for tendering for an overseas contract. If the tender contract is won, the forward exchange contract can be invoked; if the contract is lost, then the only penalty is the loss of the fee.

Types of DepositAcconts There are many different ways of categorizing the deposit accounts:

individual accounts of the companies local currency accounts foreign currency accounts according to the time constraints

1. Current accounts/checking accounts: it is the deposit account where (a ) the bank undertakes: to pay cheques issued by the depositor against this account to keep the net balance at the disposal of the customer at any time to credit to the account the interest agreed and to subs tract any related fees

and expenses (b) the client undertakes: to avoid carrying out any operations which would make the balance of

account insufficient to use the account according to the agreed terms

Current account usually have a low interest rate or no interest at all and represent a source of low-cost fund for the bank. The reason of paying low or no interest is the satisfaction that the client gets through the offering of services by the bank, such as collecting receipts, paying invoices, etc. 2. Saving accounts -are sight accounts, just as current accounts, but they offer high

rate of return and are settled in a different way. Saving accounts have a different economic meaning for the banks because they represent medium or long-term deposits (contrary to current account which are usually considered to have a short term nature).The basic requirements and expectations of depositors are:

safety being insured usually by the government laws and restrictions liquidity - the usage of the passbook on demand convenience ( any ATM can be used) return

Lately, banks started offering many services to the owners of saving accounts such as:

statement of accounts on a monthly basis by having an analytical presentation of the movements of the account

ability to pay certain obligations of the depositor (charges to credit cards, utility expenses, loan installments, etc.)

telephone service (phone banking) etc. 3. Fixed Terms accounts; they are not payable until a certain period elapses; they

yield a higher interest rate as compared to saving accounts, so the depositors have the advantage of high return, being a source of long term financing source for the bank

4. Certificates of deposits require a minimum amount of money deposited and a minimum term period, which is usually longer than the one required by the fixed term deposits. They are highly liquid, (can be transferred into cash any time), by losing part of the interest, as penalty. Their ownership can also be transferred, the new owner being entitled to get full amount at the end of the period that originally had been agreed between the bank and the initial depositor.

5. Youth deposits represent a certain type of account where higher interest rate is offered as an incentive to promote saving amongst young people.

6. Swap account is a recent innovation being introduced by the deposit-taking institutions by which their balances above ascertain level are transferred into a money-market fund. This type of accounts run usually together with mutual funds.

7. Cash management account combines a brokerage and bank account and offers to the customers daily interest on account balances and offer instant loans at brokerage account interest rates.

Vocabulary

currency: any kind of money that is in circulation in an economy. Anything that function as medium of exchange, including coins, banknotes, cheques, bills of exchange, promissory notes. The money in use in a particular country.

quotation: the representation of a security on a recognized "stock exchange". A quotation of shares allow them to be traded on a stock exchange and enables a company to raise new capital; an indication of the price at which a seller offers the goods for sale.

wholesale trading with large amount of goods retail trade or operations made on each item of goods or small amounts of money (in banking) swap; the means by which a borrower can exchange the type of funds he can most easily raise

for the type of funds he wants, usually through intermediary of a bank. spot currency market: a market in which currencies are traded for delivery within two days, as

opposed to the forward dealing exchange market forward-exchange contract- an agreement to purchase foreign exchange at a specified date in the

future at an agreed exchange rate. In international trade, with floating rates of exchange, the forward-exchange market provides an important way of eliminating risk on future transactions that will require foreign exchange. The buyer on the forward market gains the certainty such a contract can bring; the seller, by buying and selling exchanges for the future delivery makes a market and earns his living partly from the profit he makes by selling at a higher price than at which he buys and partly by speculation.

option - the right to buy or to sell a fixed quantity of a commodity, currency or security at a particular date at a particular price. Unlike futures, the purchaser is not obliged to buy or to sell at the exercise price, and will only do so if it is profitable; he may al I. Exchange rates Every business person involved in overseas trade, whether importing or exporting, will have to make or to receive payment in foreign currency. The currency of the invoice can represent a significant part in the sales negotiation and make a important difference to the final costs or proceeds. The exchange rate is simply the price of one currency in relation to another. The foreign currency must be freely convertible, in which case any one can sell it, swap it or exchange it for another currency. Exchange rates are quoted in the financial press at middle rates i.e. the difference between the buying rate and selling rate. Banks have their own foreign exchange departments and provide daily sheets or screens of up-to-date rates. The market place for trading foreign currencies is the telephone and computer links worldwide now days. All currency holdings reside in their country of origin: sterling in UK, US dollars in United States; only notes and coins, insignificant in global terms, actually move from one country to another. Central banks, commercial banks and other financial institutions, large commercial companies and few wealthy individuals are parties in the foreign exchange market, that undertakes trade in 2 areas:

c) wholesale market: interbank trading or very large commercial companies d) retail market: or commercial customers

The most available world quotation is the American dollar. Each bank or broker must be authorized and controlled to deal in foreign exchange by the central bank. The exchange currency market carries out three kinds of business: 5. spot: for settlement after two working days 6. outright: forward deals for settlement at some future date 7. swap: the purchase/sale of a currency in the spot market combined with a

simultaneous sale/purchase in the forward market

Central Banks Intervention Some countries have regulations where exchange control measures may be introduced to regulate or restrict the flow of money to ensure that the country has sufficient reserves of foreign exchange to pay its international debts. But there are also countries which are free of control restrictions, as the highly developed ones. According to the type of underlying transactions, banks offer different rates of exchange: commercial rates: that vary according to the size of the transaction; some rates

incorporate interest costs during the period that the bank is out of funds. The rates are paper based commercial transactions and do not evolve the movement of notes or coins.

note rates for the purchase and sale of foreign currency and coins when a bank gives a quotation it will give two rates

a selling rate a buying rate

The difference between these rates are called the "spread" will be adjusted to attract business and represents the banks profit. Exchange risks can be virtually fully removed by :

8. forward contracts 9. currency accounts 10. currency options 11. financial futures contracts

8. Customers wanting to establish the amount they will receive or must pay at the trade payment date in order to calculate their profit margins, will fix the price of the cost of the currency by concluding a forward exchange contract.

9. Currency accounts are any currency owned and traded outside its territorial borders. They are mostly called Eurocurrency transactions because Europe was the centre where trading of these currencies originated.

10. Currency options represents a service that provides an alternative means of covering against exchange risks, as the contract is a commitment from the bank, but it is not binding on the customer; it gives the customer the option whether or not they utilize the contract. The "option" protects against the rates movement adversely. The right to buy or sell a given amount of a foreign currency at a future date can be exercised or lapsed or resold with cash settlement.

11. Financial Future Contracts For a fee, an exporter can fix forward exchange rates to calculate their price for tendering for an overseas contract. If the tender contract is won, the forward

exchange contract can be invoked; if the contract is lost, then the only penalty is the loss of the fee.

Types of DepositAcconts There are many different ways of categorizing the deposit accounts:

individual accounts of the companies local currency accounts foreign currency accounts according to the time constraints

12. Current accounts/checking accounts: it is the deposit account where (a ) the bank undertakes: to pay cheques issued by the depositor against this account to keep the net balance at the disposal of the customer at any time to credit to the account the interest agreed and to subs tract any related fees

and expenses (b) the client undertakes: to avoid carrying out any operations which would make the balance of

account insufficient to use the account according to the agreed terms

Current account usually have a low interest rate or no interest at all and represent a source of low-cost fund for the bank. The reason of paying low or no interest is the satisfaction that the client gets through the offering of services by the bank, such as collecting receipts, paying invoices, etc. 13. Saving accounts -are sight accounts, just as current accounts, but they offer high

rate of return and are settled in a different way. Saving accounts have a different economic meaning for the banks because they represent medium or long-term deposits (contrary to current account which are usually considered to have a short term nature).The basic requirements and expectations of depositors are:

safety being insured usually by the government laws and restrictions liquidity - the usage of the passbook on demand convenience ( any ATM can be used) return

Lately, banks started offering many services to the owners of saving accounts such as:

statement of accounts on a monthly basis by having an analytical presentation of the movements of the account

ability to pay certain obligations of the depositor (charges to credit cards, utility expenses, loan installments, etc)

telephone service (phone banking)etc 14. Fixed Terms accounts; they are not payable until a certain period elapses; they

yield a higher interest rate as compared to saving accounts, so the depositors have

the advantage of high return, being a source of long term financing source for the bank

15. Certificates of deposits require a minimum amount of money deposited and a minimum term period, which is usually longer than the one required by the fixed term deposits. They are highly liquid, (can be transferred into cash any time), by losing part of the interest, as penalty. Their ownership can also be transferred, the new owner being entitled to get full amount at the end of the period that originally had been agreed between the bank and the initial depositor.

16. Youth deposits represent a certain type of account where higher interest rate is offered as an incentive to promote saving amongst young people.

17. Swap account is a recent innovation being introduced by the deposit-taking institutions by which their balances above ascertain level are transferred into a money-market fund. This type of accounts run usually together with mutual funds.

18. Cash management account combines a brokerage and bank account and offers to the customers daily interest on account balances and offer instant loans at brokerage account interest rates.

NOTE DE CURSI. Exchange ratesVocabulary